Monday, March 15, 2010

SOLD! Tommy Hilfiger Goes to PVH for $3B!

Looks like the rumors were true:

Phillips-Van Heusen to Buy Tommy Hilfiger
March 15, 2010
Phillips-Van Heusen, the clothing conglomerate that owns Calvin Klein, agreed on Monday to buy Tommy Hilfiger, once a leading purveyor of colorful preppy clothing, for about 2.2 billion euros ($3 billion), in cash and stock.

Phillips-Van Heusen, which also owns Arrow and Izod and licenses brands like Geoffrey Beene and Kenneth Cole New York, is hoping to take advantage of Tommy Hilfiger’s strong European distribution channels for its own products. Despite Tommy Hilfiger’s reputation as a quintessentially American clothier, two-thirds of the company’s business is based in Europe.

“Tommy Hilfiger fits all of our acquisition criteria: a strong brand, superior management, highly profitable, immediately accretive to earnings, and focused on international growth,” Emanuel Chirico, Phillips-Van Heusen’s chairman and chief executive, said in a statement.

Under the terms of the deal, Phillips-Van Heusen will pay 1.9 billion euros in cash and 276 million euros in stock, as well as assume 100 million euros of liabilities.

The bulk of the purchase price will be borrowed money. Phillips-Van Heusen intends to finance the cash portion of the deal and refinance $300 million worth of bonds with a combination of $385 million of cash on hand, $2.45 billion of bank loans (including an undrawn $450 million revolver) and $600 million of senior unsecured bonds.

The company will also issue $200 million of perpetual convertible preferred notes issued to LNK Partners and MSD Capital that convert at $47.74 a share with no coupon or liquidation preference. If fully exercised, the securities will convert into about 6 percent of Phillips-Van Heusen’s outstanding shares.

Phillips-Van Heusen also intends to issue $200 million of new shares before the deal closes.

The deal is subject to Phillips-Van Heusen’s obtaining the necessary financing. In case that does not happen, it will pay Apax Partners, the British private equity firm, a 69 million euro break-up fee.

While Mr. Hilfiger no longer holds a management role at the company that bears his name, he will remain a principal designer and a public face for the clothier under Phillips-Van Heusen.
Read more here.

This is a good deal for both parties: The acquisition of Tommy Hilfiger makes PVH the largest clothing company in the world, amassing $4.6B in global sales, and increases the company's international presence, particularly in Europe (where more than half of Hilfiger's business is based) and Asia (where Hilfiger enjoys strong distribution). On the flip side, this is perfect timing for Hilfiger which is in the midst of a comeback thanks to an overhaul of the brand. The company stands to experience growth, on par with Calvin Klein when it was acquired by PVH in 2003. Since then, CK has grown 12%-14% per year and boasted a 6% upswing in their fiscal 2009 performance.

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